Is the US Credit Crunch Over?

Early in the week, easing credit concerns pushed the DOW through 14000 for the first time since July.

Citigroup reports that third quarter earnings plunged 60% but financials still rallied on the back of fourth quarter predictions that business will continue as normal. This sparked hopes that the credit market problems had bottomed out.

Bear Stearns is looking for an investor to take a stake of up to 20% in the company, with the CEO saying the firm would consider an investor from China or the Middle East if the deal created value.

GM reached a tentative deal with unions that includes healthcare. Automaker sentiment rose on the hope that the deal could serve as a pattern for the industry and save costs in healthcare.

Jobs data out on Friday is making the market nervous. Problems in the US have yet to affect US consumer confidence but an increase in jobless claims may indicate that the problems are deeper than initially thought. The number of jobless claims rose by 16,000 last week while factory orders decreased 3.3% in August. If expectations for 100,000 new jobs are realised, the market should rally and the US dollar strengthen.

A closely watched sub-prime mortgage index hit a record low Thursday

Asia Pacific

Chinese markets were closed for three days this week due to a holiday. Hong Kong was closed Monday and Korea closed on Wednesday.

The Bank of Japan’s quarterly Tankan report recorded its highest level in two years. The index came in at 23 versus a forecast of 21. Non-manufacturing recorded 20, which was below expectations. The all-industry capex, which measures capital expenditure, was up 8.7%. Numbers were better than expected given the volatility in global markets. Corporate Japan appears to be doing well.

The Reserve Bank of Australia kept interest rates unchanged at 6.5% as expected. Australia’s central bank is likely to wait for third quarter Australian CPI data due on 24 October before it changes monetary policy.

UK

The Bank of England and European Central Bank decided to stay on the sidelines and keep interest rates unchanged. The decision surprised few given the uncertainty in the markets and concerns about global inflation. The ECB kept rates at 4% and said it expects inflation to remain above its 2% target well into next year. BoE did not release a statement accompanying its decision.

End note

The US markets are turning increasingly optimistic. All eyes are on jobs data (non farm payrolls) out in the US on Friday, with the market expecting 100,000 new jobs. The view is increasingly taking hold that the worst of the credit problems are over. Many players in the market disagree, saying that there could be one or two more surprises.